DENNIS R. DOW, Bankruptcy Judge.
The adversary proceeding before the Court is the complaint filed by Lee Ronald Dahmer and Judith Ann Dahmer ("Plaintiffs") against the Internal Revenue Service (later substituted by the properly named defendant, the United States of America) ("IRS") and the Missouri Department of Revenue ("MDOR") pursuant to 11 U.S.C. § 523(a)(1) seeking a declaratory judgment that any tax debt owed by Plaintiffs to the IRS and the MDOR for the 1987 tax year is dischargeable and that any liens levied against Plaintiffs' property associated with that tax debt should be avoided by the Court or that said liens attach only to Plaintiffs' property as of the date of their bankruptcy filing. In their Answer, the IRS admits that the tax debt owed by Plaintiffs to the IRS for the 1987 tax year is dischargeable, but asserts that the Court has no authority to avoid a properly filed tax lien on property. The MDOR asserts that, pursuant to 11 U.S.C. § 523(a)(1)(B)(i), Plaintiffs' 1987 tax debt is excepted from discharge because they failed to file an amended 1987 income tax return as required by Mo.Ann.Stat. § 143.601 (2005). Neither the MDOR nor the IRS disputes that their respective liens attach only to Plaintiffs' property as of the date of their bankruptcy filing.
The issues before the Court are: (1) whether Plaintiffs were required to file an amended tax return with the MDOR for the 1987 tax year; and (2) whether the Court has any authority to avoid properly perfected liens levied by the IRS and the MDOR against Plaintiffs' property as of the date of their bankruptcy filing. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) and (K) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a) and (b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to these proceedings by Rule 7052 of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below, the Court finds that Plaintiffs were not required to file an amended 1987 income tax return with the MDOR and, therefore, their debt to the MDOR for that year is dischargeable pursuant to 11 U.S.C. § 523(a)(1). The Court further finds that it has no authority to avoid the liens properly levied, by the MDOR and the IRS, against the Plaintiffs' property and that the liens attach only to Plaintiffs' property as of the date of their bankruptcy filing.
I. FACTUAL BACKGROUND
Plaintiffs filed for relief under Chapter 7 of the United States Bankruptcy Code on April 11, 2005 ("Filing Date"). On June 21, 2005, Plaintiffs filed a complaint seeking a declaratory judgment that their liability to the IRS and the MDOR for the 1987 tax year is dischargeable under the Bankruptcy Code and to determine the validity of the federal and state tax liens against their property. The parties stipulated to the following facts and submitted the same to the Court to determine the legal questions.
On March 1, 1994, the MDOR issued a Notice of Deficiency to Plaintiffs pursuant to which the MDOR assessed a tax of $5,471.54, interest of $3,749.37 and additions of $273.58 for a total tax assessment of $9,494.49. On May 24, 1994, the MDOR issued a Notice of 10 Day Demand to Plaintiffs and on July 6, 1994 the MDOR issued a Final Notice to Plaintiffs. The MDOR subsequently issued four (4) Balance Due Notices. On May 16, 1996, the MDOR filed a Certificate of Tax Lien with the Recorder of Deeds in Vernon County, Missouri ("State Tax Lien"). The MDOR does not dispute that the State Tax Lien does not attach to and is ineffective against all property and rights to property of the Plaintiffs, acquired by them after the Filing Date.
Plaintiffs filed their original 1987 federal tax returns with the IRS on or before April 15, 1988. Plaintiffs did not file an amended 1987 federal tax return. On June 25, 1993, a delegate of the Secretary of the Treasury made a timely assessment against the Plaintiffs for unpaid federal income taxes for the 1987 taxable year. A Notice of Federal Tax Lien under Internal Revenue laws was filed against the Plaintiffs, with the Recorder of Deeds, Vernon County, Nevada, Missouri, on November 21, 1994 and re-filed on May 2, 2003, for the unpaid federal income tax for the 1987 taxable year ("Federal Tax Lien"). The parties have stipulated that the unpaid federal income tax, interest, and additions owed by the Plaintiffs for the 1987 taxable year are properly subject to discharge in this bankruptcy proceeding pursuant to §§ 523 and 727. The IRS also does not dispute that the Federal Tax Lien does not attach to and is ineffective against all property and rights to property of the Plaintiffs, acquired by them after the Filing Date.
II. DISCUSSION AND ANALYSIS
A. Missouri State Tax Liability
Pursuant to § 523(a)(1)(B)(i), a discharge does not relieve a debtor from liability for an income tax claim if a required tax return was not filed.
Mo.Ann.Stat. § 143.601.
Plaintiffs contend that they were not required to file an amended tax return for 1987 because Mo.Ann.Stat. § 143.601 states only that a taxpayer must "report" the change in federal income, and that a "report" does not constitute a requirement to file an amended return. The later question is discussed below. On the former question, the MDOR argues that the Court must consider the Missouri Code of State Regulations, which provides additional guidance for taxpayers whose federal income has been adjusted. Specifically, the regulation upon which the MDOR relies states in relevant part:
12 CSR 10-2.105.
Plaintiffs' reply is that 12 CSR 10-2.105(3)(A)-(F) includes six specific scenarios which could constitute a "final determination" under this regulation
A review of the six scenarios set forth in the regulation reveals that only one of the scenarios is even arguably relevant to the undisputed facts in evidence. Paragraph (3)(C) of the regulation triggers a taxpayer's duty to file an amended tax return after the expiration of 90 days after a "statutory notice of deficiency issued by the IRS."
The Court now turns to the question of whether a state statute, which sets forth that a taxpayer shall "report" a change in federal income tax, is equivalent to a requirement to file an amended tax return. The Court notes that Congress may have been attempting to resolve this issue by its amendment to § 523(a)(1)(B)
Several courts have held that a statutory requirement of a taxpayer to "report" a federal tax change is not equivalent to a requirement to file an amended tax return. For example, in State of California Franchise Tax Board v. Jerauld, 208 B.R. 183, 185 (9th Cir.BAP 1997), the Ninth Circuit affirmed a finding that a debtor's failure to report to the State of California, Franchise Tax Board a change in the debtor's federal taxes did not constitute a failure to file a required return under § 523(a)(1)(B)(i). In that case, as in the case at bar, the debtor did not file an amended tax return or any sort of "report" of changes in his federal income. Id. The State of California, Franchise Tax Board urged the Court to follow an opinion from New York which essentially held that a failure to comply with a statutory reporting requirement, whether it be an amended tax return or some other form of report, justifies the denial of discharge of a tax claim under § 523(a)(1)(B)(i). See Butler v. United States Dep't of I.R.S. (In re Butler), 177 B.R. 209, 211 (Bankr.S.D.N.Y.1995). The Ninth Circuit rejected the reasoning in Bulter, holding that because the language used to describe the exception in § 523(a)(1)(B)(i), specifically the word "return," is clear and unambiguous,
In Blackwell v. Commonwealth of Virginia Dep't. of Taxation, 115 B.R. 86, 89 (Bankr.W.D.Va.1990), the Court interpreted a statute very similar to Mo.Ann.Stat. § 143.601 and found that a requirement that a taxpayer "shall report" a change in federal income was not the equivalent of a requirement to file an amended tax return. As in Jerauld, the Blackwell Court noted that the function of the courts was to interpret and enforce statutes as written, not to rewrite or correct them. See Blackwell, 115 B.R. at 89. Additionally, the Blackwell Court noted that the purpose behind § 523(a)(1)(B)(i) was to "except from discharge taxes to which a debtor willfully attempted to evade or defeat by not filing a return." Id. As in Jerauld and Blackwell, the facts here do not indicate that Plaintiffs' failure to comply with Mo.Ann.Stat. § 143.601 was motivated by an attempt to avoid paying any additional state tax. Moreover, the IRS does not allege any fraud or wrongdoing by Plaintiffs in connection with their 1987 tax liability. Because the Court finds that 12 CSR 10-2.105 was not triggered by the facts in evidence in this case, and that the phrase "shall report" contained in Mo.Ann.Stat. § 143.601 is not the equivalent of a requirement to file an amended tax return, Plaintiffs did not fail to file a required return under § 523(a)(1)(B)(i) and therefore their debt to the MDOR for the 1987 tax year is dischargeable pursuant to § 523(a)(1).
B. Federal and State of Missouri Tax Liens
The parties have stipulated to the validity of the Federal and State Tax Liens filed by the IRS and the MDOR respectively.
III. CONCLUSION AND ORDER
For all the reasons cited above, the Court finds that: (1) the Plaintiffs' tax debt to the MDOR and to the IRS for the 1987 tax year is dischargeable pursuant to 11 U.S.C. § 523(a)(1); (2) that the Court has no authority to avoid the liens levied by the MDOR and the IRS against Plaintiffs'
A separate Order will be entered in accordance with Bankruptcy Rule 9021.
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt —
(A) Payment of any additional federal income tax, not the subject of any other final determination described in subsections (3)(B)-(F) of this rule;
(B) The signing of a Federal Form 870 or other IRS form consenting to the deficiencies, accepting any over assessment shown on the form, or both.
(C) The expiration of the ninety (90)-day time period . . . within which a petition for redetermination may be filed with the United States Tax Court with respect to a statutory notice of deficiency issued by the IRS, if a petition is not filed with that court within that time;
(D) A closing agreement entered into with the IRS under Section 7121 of the Internal Revenue Code. The final determination shall occur when the taxpayer receives notice of the signing by the commissioner of internal revenue;
(E) A decision by the United States Tax Court, United States District Court, United States Court of Appeals, United States Court of Claims or the United States Supreme Court which has become final, or the date the court approves a voluntary agreement stipulating disposition of the case; and
(F) the allowance of a tentative carry back adjustment in accordance with Section 6411 of the IRC based on a net operating loss carry back.